Nowhere is the proverbial real estate mantra “location, location, location,” more apropos than in the convenience store environment. During this time of economic uncertainty, one of the most difficult problems facing many petroleum businesses is selecting a solid site for their first (or fifth) store that is logical, profitable, and competitive.
Evaluating site selection is not a new concept for today’s c-store owners and operators. “If the number [of c-stores] is 146,000 in the country, 60 percent are independently single-store operators,” says Travis Heiser, chief executive officer at IMST Corp. “Nine out of 10 of the projects we work on are single site evaluations. Essentially a client has identified a property that they are interested in. This typically includes two different scenarios—either they are building a new store or they may have an existing store, but it is time to do a major upgrade to it and it is such a significant investment that they are looking for a third party evaluation. The focus of our evaluations is sales forecasting, primarily fuel gallons and convenience store dollars.”
That said, Heiser says that site evaluation has become trickier during this challenging economy. “There are some macro things that have changed. People have less discretionary income, there’s not as much impulse buying, miles driven are down, fuel gallons are down, and fuel prices are up,” Heiser says. “People are going in saying, ‘I’m going to put $40 in my tank,’ not ‘I’m going to fill this up.’ When that $40 is gone, it is more difficult to entice them to enter the store to sell them a taco.”
So what type of competitive factors must be considered when evaluating a new site? According to Marianne Hillhouse, senior sales representative at Market Planning Solutions Inc. (MPSI), when building a new site, retailers must evaluate and understand every component of the “retail value chain” and how their new site compares to the pacesetter within their marketing area for each attribute.
HIllhouse says that there are several key components to the retail value chain that are critical to the success of a new site. These include location, facility, merchandising, price, operations, brand and competition. “Retailers must understand each component and how their new site stacks up to the competition for each component,” Hillhouse says. “The most successful new sites do not have any weak links in their retail value chain.”
Location. Successful site selection begins with finding the right location. “The old adage ‘location, location, location’ still applies,” Hillhouse says. “As consumers are in a hurry to meet the many demands on their limited time, they are looking for a quick way to satisfy their need for certain products. The population base is moving from the inner city to the outlying communities. Consumers are now traveling greater distances to get to work, run errands and attend functions. The importance of traffic cannot be ignored. The location needs to have an adequate number of vehicles passing by each day.”
Demographics. C-stores serve very micro geographies. “A new customer may ask us to come to his property in Pittsburgh. But the client is thinking to himself, ‘How can someone from IMST come to my store in Pittsburgh to evaluate it when I have lived here my whole life,’” Heiser says. “But the reality is I have to understand a very small area of Pittsburgh to understand how his convenience store might perform in the future. He is going to influence a relatively small geography.”
Heiser says that what has become trickier is that c-stores depend on little niche pockets of demand. “It could be a construction team that starts their day a ½ mile from your site every morning,” Heiser says. “The construction team grabs breakfast at your store and always fills up their coolers in the morning. If that little niche goes away because of our economy, you have a whole different trade area. And that’s what has made it so much trickier.”
In another example, Heiser says one c-store client may show him a small residential area, made up of 25 to 30 trailers. They have customers coming out of there all day long and are here because they are seasonal workers supporting a specific industry.
“If that industry changes all of a sudden, my trade area isn’t so great anymore,” Heiser says. “It is such a micro niche demand, but that’s become trickier because micro sources of demand have changed. If I’m that operator and I have found a site that I like because it’s near a new subdivision and that subdivision development stops, what a change that will be. That’s a factor in our new economy. You have to check and triple check these micro sources over and over because they constantly change at your existing stores and they become that much more critical.”
Streamlined Functionality. In addition to finding the right location, a facility must have convenient ingress/egress, sufficient parking and high visibility. It must be modern, clean, well lit and secure.
“Because of the tighter economy, consumers are being more careful with how they spend their money. The best retailers will have the right product mix, adequate inventory, fresh merchandise and a clean, neat appearance,” Hillhouse says. “Prices need to be perceived by the consumer as competitive to the total offering. Staffing outlets with quality employees who are well-trained and retained over time will contribute positively to the bottom line. It is important for the operations of the outlet to compliment the investment.”
Competiton. Defining and evaluating your competition near a proposed site can be tricky. “Our clients can intuitively understand who their competition is. There are nuances to that. There are neighborhood changes, traffic changes, natural barriers, manmade barriers, but again, there are some nuances as to who exactly are their natural competitors,” Heiser says. “When you determine that, you look at attractiveness of the their store and the facility, and the proximity to you. Are they across the street or a mile away? And pricing, pricing is critical."
Attractiveness of the competition would include services, amenities and design of a facility. “When I look at a new site and see these are five of my direct competitors, I look at their attractiveness and the design of their facilities,” Heiser says. “Do they all have car washes or a brand recognition or chain recognition? Are they employee or service oriented? Do they all have modern design facilities? Or do I have five competitors and they are older facilities and they don’t have modern amenities, so when I come in I will be the best store of my trade area?” These are all key questions to ask when evaluating the competition.
The other key area to focus on is proximity of the competition and competitive impact this proximity will have on your store. “A top of a line competitor—the strongest competitor in my market—who is located a mile away versus at my intersection, is going to have a different impact on my site,” Heiser says. “So I have to take into consideration not only how attractive and how good are they but what is their distance from me and how might that change things.
And remember that pricing is critical. “It is difficult to build a new store and always be at a price disadvantage for whatever reason,” Heiser says. “Ask yourself: ‘If I have price like these guys what does this do to my margin and how does that work with this type of return I need to justify this investments?’”
Incorporating Into Your Existing Network
When determining site selection within an existing network, Hillhouse says it is imperative to consider how they will impact the entire network. “A plan may appear to be good when viewed in isolation for a single outlet, however; when evaluated with respect to its impact on the entire network, the opposite could be true,” Hillhouse says.
As Hillhouse explains, the individual outlet strategies need to be combined to evaluate their interactive impact. “Sophisticated, predictive models, such as those offered by MPSI, understand the key drivers of performance, outlet strengths and weaknesses, and can quantify the impact of proposed outlet changes,” she says. “With so many variables to consider, a mathematical model is the best method for understanding the complexity of how a change at one outlet will impact another outlet or multiple outlets. Best-of-practice marketers rely on models to evaluate interaction and cannibalization. Any plan that will cause significant cannibalization to an existing network should be carefully analyzed.”
Possible competitive reaction should also be considered. “This can either be ‘known’ competitive activities or ‘anticipated’ activities,” Hillhouse says. “Competitor outlets are reviewed with the same scrutiny that is given to a marketer’s own network in order to anticipate how they might react to the proposed new site.”
Heiser says that it’s vital the new site meld with existing operations. “Sales transfer or cannibalization is always an issue,” he says. “If you build on this site, identify if one of your existing sites is a network store competitor. If it is, then you have to factor in the impact on that new competitor.” Although you may negatively impact your sister store, if, in the end, you are building your chain or brand awareness in the trade area, and increasing your total gallons and dollars, and both stations stay profitable, it could be a good decision.
“I don’t think you can say if I negatively impact my sister stores I can’t do the site,” Heiser says. “I don’t think that’s true, but I think you have to weigh that issue. If they are starting to influence a sister store by more than 10 percent that might be too much. The other consideration is if that sister store is outdated, and its lifespan is toward the end, and the piece of real estate is not something that you can update or expand, building an additional location may help provide a new fresh image in this trade area.”
There are a lot of barriers when finding good sites—especially when you are competing with fast food chains, retailers, drug stores, or other zoning and permit challenges. “Sometimes what I see with clients is that those barriers are low on this property, but they say they need to grow, so they’re going to make this work,” Heiser says. “They’ve lost sight of the fact that there are things on this site that are not going to benefit their chain. And they may not make for a good location. Sometimes we will have someone with a good piece of dirt but they are not ready to take this new store and really operate it in the way that a great site needs to be operated. Remember, a great site always has a great operator.”